Small is lucrative for Wachtell, corporate America's legal defense force

Greg Roumeliotis

6 Min Read

NEW YORK (Reuters) - Every Tuesday, partners and associates at Wachtell, Lipton, Rosen & Katz gather for a communal lunch in the dining room of the law firm’s Manhattan offices.

The logo for the Wachtell, Lipton, Rosen & Katz law firm is seen at their office in New York, U.S., June 7, 2017. REUTERS/Shannon Stapleton

Food ordered from top New York restaurants is served, but the real attraction is Martin Lipton, one of the firm’s co-founders and corporate America’s most famous consigliere.

The father of the ‘poison pill’ – a key defense strategy used against hostile takeovers – Lipton has helped build the firm into the most lucrative legal outfit in the world, a go-to shop for companies seeking to seal complex deals or repel suitors and activist investors.

The weekly lunch is just one of the ways the 85-year-old stays in touch with new associates and reinforces the firm’s close-knit culture, where young law graduates are often paired with senior partners to work on big deals.

Partners say a flat structure and relatively small size - Wachtell’s lawyer headcount of about 260 is roughly half of its closest rival Cravath, Swaine & Moore – is key to the firm’s success.

The firm’s concentrated business model contrasts with the strategy of many law firms to become one-stop shops for deals, from navigating niche regulatory processes to sorting through labyrinthine tax affairs.

Lipton is confident that his strategy of concentrating on high-stakes corporate situations will persist, according to interviews with several senior partners at the firm. This is because corporate America continues to turn to Wachtell as its top legal gun for hire.

“Wachtell’s business model is to be the firm you go to when you are not willing to take any risk at all,” said Stephen Gillers, a New York University School of Law professor. “They know that in the big M&A cases, legal fees, no matter how big they are, are insignificant to the value of concluding the deal.”

When French drug giant Sanofi SA SASY.PA threatened U.S.cancer drug company Medivation Inc with a $9.3 billion hostile bid last year, for example, Medivation called Wachtell despite having an existing external legal adviser, Cooley. Cooley helped Medivation to go public in 2004 and is best known for advising on initial public offerings and defending against patent and class action lawsuits. Cooley and Medivation declined to comment.

MOST LUCRATIVE

With some U.S. companies domiciled overseas, Wachtell’s partners often have to adapt their techniques to different jurisdictions.

Rather than opening offices internationally as some of their rivals have done, Wachtell’s lawyers fly out to advise, staying weeks in some cases to see a case through, and turn to other law firms to assist them.

Wachtell did consider opening a London office in recent years, but decided against it, partner at the firm said. The feeling among the firm’s senior partners was that expansion would dilute its culture, which is based around forming ad hoc teams to deal with situations, all from the one office in Manhattan.

Keeping itself small has helped Wachtell become the most lucrative law firm in the world, with the average partner making a profit last year of $5.8 million, according to trade publication American Lawyer. The top 100 law firms averaged profit per partner of $1.66 million.

Capping the workforce also means that partners do not have an army of associates to foist work onto.

“We work harder on average than other places, the work is very partner-heavy. It’s the type of work where vast experience is critical,” said Daniel Neff, co-chairman of Wachtell’s executive committee.

No one is more experienced than Lipton, referred to as Marty by clients and colleagues. He continues to work on high-profile cases including, most recently, advising General Motors Co’s GM.N board of directors on its defense against activist hedge fund Greenlight Capital, as well metal parts maker Arconic Inc ARNC.N on its settlement with activist hedge fund Elliott Management Corp.

Besides Lipton, two of the other three founding partners, Leonard Rosen and George Katz, have died. However, like Lipton, founding partner Herbert Wachtell remains active at 84 practicing law, focusing on corporate litigation, which is the firm’s other major area of strength.

M&A ROYALTY

Lipton has built a bench of seasoned deal lawyers who now account for the majority of the business that comes through the door. They include Neff and Edward Herlihy, who formally lead the firm as co-managing partners, as well as Andrew Brownstein, David Katz, Steven Rosenblum, Adam Emmerich and Andrew Nussbaum, among others.

When Perrigo Co Plc PRGO.N turned to Wachtell in 2015 to defend against a $35 billion offer from Mylan NV MYL.O, it was a 45-year-old partner, Igor Kirman, that the Irish-domiciled generic drug maker chose to lead its defense in three continents. Perrigo subsequently defeated what was the largest hostile bid ever rejected by a company’s shareholders.

“It was a given for me that by turning to Wachtell we would get excellent legal advice. But Igor also took very complex issues and simplified them so Perrigo’s board could understand,” said Joseph Papa, Perrigo’s former CEO who now leads Valeant Pharmaceuticals International Inc VRX.TO.

Lipton remains influential, fielding calls and studying cases every day from his 31st-floor office, which is filled with memorabilia from major deals stretching back to the 1970s.

“Lipton is royalty in the M&A bar. There is no immediate successor to the status that he has achieved,” said Gillers.

“The fact that clients still ask for him at the age of 85 shows you that the most important assets of a lawyer are his experience and judgment.”

Reporting by Greg Roumeliotis in New York; Additional reporting by Liana B. Baker in San Francisco; Editing by Carmel Crimmins and Bill Rigby